Constitutional Validity Of National Company Law Tribunal (NCLT) And Role In Dispute Resolution

Abstract

With effect from June 1, 2016, the Ministry of Corporate Affairs (MCA) established the National Company Law Tribunal (NCLT) and its appellate authority, the National Company Law Appellate Tribunal (NCLAT). All issues and problems connected to company law in India will have to be adjudicated and decided by the quasi-judicial bodies known as NCLT and NCLAT. The Justice Eradi Committee, formed in 1999 to examine the legislation relating to insolvency and company winding up, advocated the notion of establishing NCLT for the first time. The committee proposed and recommended that a national tribunal be established. The purpose of this research paper is to critically examine the NCLT’s constitutional validity while keeping in mind the country’s law.

Introduction

Any statute does not define tribunals. Courts have ruled that tribunals are not courts in numerous cases. The Hon’ble Supreme Court held in Sampath Kumar v. Union of India that the adoption of the theory of alternative institutional mechanism would lead to rapid disposal of cases, reducing the burden on the High Court and that the creation of these tribunals is within the legislative competence of Parliament and state legislatures, as stated in Article 245 of the constitution read with provisions under List I of the constitution.

The Company Law Board (CLB), which was established under the Companies Act, 1956 (1956 Act), has been discontinued from the effective date, and all ongoing issues, hearings, or cases before CLB have now been transferred to the NCLT. Under the powers provided by Section 408 and Section 410 of the Companies Act, 2013, the NCLT was established by the Central Government, namely the MCA.

The MCA has issued three notifications, each dated June 1, 2016, for the following purposes:

Establishment of the NCLT and NCLAT;
The CLB was dissolved under Section 466 of the 2013 Act.
Notification of various Sections of the 2013 Act; and NCLT Benches Location

Research Questions

What was the background and idea behind the setting up of NCLT?
What is the composition of NCLT, and how does it function?
What is the constitutional validity of the establishment of NCLT?
What is the role of NCLT in dispute resolution?

1.) What was the background and idea behind the setting up of NCLT?

The Justice Eradi Committee, formed in 1999 to evaluate the legislation relating to insolvency and company winding up, advocated the notion of establishing NCLT for the first time. The committee recommended that a national tribunal be established. The Companies (Second Amendment) Act of 2002 created the concept of tribunals and appellate tribunals for dealing with company law issues. The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) were established in 2016 under the Companies Act of 2013 (The Act).

Both are quasi-judicial bodies in India that hear matters affecting Indian companies and corporations. Section 408 and Section 410 of the new Companies Act of 2013 authorized the establishment of the Tribunals as mentioned above. The NCLT and NCLAT were established under Article 245 of the Indian Constitution. The Supreme Court upheld and permitted the formation of both under the Companies Act, 2013, to alleviate the burden of numerous forums and to take up all disputes relating to company law and other governing regulations. The NCLT provides a single point of contact for litigating and settling issues, which was not previously the case. The document summarizes NCLT’s formation, constitutional legality, and function in conflict resolution.

For the first time, the notion of establishing NCLT was offered to examine the legislation relating to insolvency and company winding up. The Justice Eradi Committee highlighted the multiplicity of judicial proceedings as the primary cause of delays in company concerns. Given the existence of multiple different forums dealing with various company-related issues, the formation of NCLT was suggested as a solution to this problem.

‘Except for criminal prosecutions for violations of the Companies Act, the NCLT is a quasi-judicial body intended to adjudicate all company-related disputes’. It resulted in the abolition of the Company Law Board (CLB) and the removal of civil courts’ jurisdiction, with all ongoing cases being transferred to the NCLT. The Tribunal is not administered by the equivalent strict evidentiary and methodology principles as the courts. It can pursue choices because of the principles of natural justice. It was likewise concluded that the civil Court’s jurisdiction is banished when NCLT has been given power.

2.) What is the composition of NCLT, and how does it function?

The primary points of contention concerned the composition of the selection committee and the qualifications of the Tribunal’s members. The Court also made relevant observations, such as the clause allowing a member from the technical side to maintain his or her office in lien for a year, which they thought was unjustified. Another observation and order were that the three-year term of appointment is insufficient for a job of this nature, where it would take years for a person appointed as a member to become acquainted with the workings of the Tribunal finally, and that the term should be increased rather than going through the reappointment process again.

The NCLT will comprise a President and as many Judicial and Technical Members as needed. According to the MCA circular dated June 7, 2016, the NCLT’s chief bench will be in New Delhi, with ten additional benches in Mumbai, Kolkata, Chennai, Bengaluru, Chandigarh, Allahabad, Ahmedabad, Hyderabad, and Guwahati. The CLB’s existing personnel will also be members and staff of the NCLT.

The provisions relating to the call for a general meeting, oppression and mismanagement, investigations into the company’s affairs, class action suits, and conversion of a public company to a private company, inspection of books, minutes, and compounding of offences will now be dealt with by the NCLT. In addition, the High Courts will continue to have jurisdiction over clauses relating to compromise, merger, winding up, and capital reduction.

Appeals from NCLT orders will be filed with the NCLAT rather than the High Court. Appeals from NCLAT orders, on the other hand, shall be handled by the Hon’ble Supreme Court of India.

3.) What is the constitutional validity of the establishment of NCLT?

Since the Companies (Second Amendment) Act, 2002, one of the most contentious issues in company law has been the legality of the NCLT. The constitutionality of the NCLT has been challenged in the higher judiciary on several occasions.

The Parliament was within its power to establish a Tribunal to resolve company law issues because this function is guaranteed by Articles 245 – 247, the Union List (List I), and the Concurrent List (List III) of the Indian Constitution. The Court further pointed out that Article 323B is just an enabling clause for the Parliament to establish tribunals; it does not stipulate that tribunals can only be established for the things listed in the said Article.

As a result, the Parliament is competent to legislate on such topics. It is not prevented from establishing tribunals for purposes other than those listed in Article 323. The inference that the tribunals are illegal is incorrect simply because the powers of constitutional courts have been transferred to them. The case of L. Chandra Kumar, which overruled the case of Sampath Kumar, shows that these tribunals will only exist to support the courts, not to replace them. In some situations, the High Court’s judicial review powers cannot be removed. The courts will review the tribunals’ formation and their members’ qualifications. As a result, the rule of law and the independence of the Court would not be jeopardized, and the tribunals would only be given limited authority over a specific subject.

4.) What is the role of NCLT in dispute resolution?

The Companies Act establishes a single forum for most company law disputes, one of its essential characteristics. Delays in resolving disputes hinder new investment and devalue assent, resulting in increased business and market inefficiencies. The Act combines the jurisdictions of CLBs, the High Court/District Courts, and the BIFRs into a single Tribunal, the NCLT. Section 407 to Section 434 of the Act deal with the NCLT and NCLAT, which are used to resolve corporate disputes. Following the foundation of the NCLT, aggrieved investors can now launch class-action lawsuits against corporations for wrongdoings and even seek compensation from the auditors involved.

The NCLT has several key advantages, including a faster dispute resolution procedure and consistency in decision-making. NCLT was created to resolve and control the following types of conflicts and activities:

The Tribunal decides all processes under the Companies Act, including arbitration, compromise, reconstruction, and winding up.
It is in charge of corporate mismanagement and oppression investigations. A former employee of a corporation can also file a lawsuit.
Just when the NCLT has supported the conversion of a public company to a privately owned business, could a debate at any point be recorded? It likewise manages firms that dry up their depositors’ and stockholders’ wages to execute misrepresentation and immoral conduct. The Tribunal repays these financial investors and depositors.
It can research and deregister a company enlisted deceitfully or wrongfully.
If a debate emerges and the firm will not record an exchange of its securities, the transferee could document a grievance with the NCLT.
‘The NCLT settles issues involving requests for the replacement of a company’s auditors if the such auditor has been involved in any fraudulent behavior- the NCLT can even mandate such a change Suo moto’.
The NCLT settles disputes by approving a plan for a company’s resurrection and rehabilitation based on a request from any shareholder or the company itself.
NCLT approval is required for a company to lower its share capital.
Apart from the issues mentioned earlier, NCLT also deals with various other conflicts. ‘The strain on Indian courts would have been enormous if that had not been the case. It facilitates a quick resolution of disputes, gives a single point of contact, avoids duplication of actions before many forums, and decreases the workload of the High Court and District Court. The establishment of the NCLT is aimed at resolving corporate disputes more quickly, making it easier to conduct business.

Conclusion

To conclude, the foundation constitution of the NCLT as the sole Tribunal for the organization of all matters emerging under the Companies Act will, without a doubt, diminish. It does not kill, the devastating postponement in company law proceedings, stays away from numerous litigations before various discussions, smooths out the appeals cycle, and lessens the weight on the High Courts and District Courts.

As the Supreme Court correctly stated, NCLT and NCLAT should be judicial tribunals par excellence, which can only be achieved if members of NCLT/NCLAT are appropriately qualified and adhere to the established requirements.

Transparency ought to be there to know from the time a petition is documented with the National Company Law Tribunal to start a bankruptcy case until it is settled so recuperation rates can be determined, which will assist individuals with deciding the liquidation worth of the firm is exchanged. This information is helpful to everybody in the economy. At the point when a corporate debt holder is confessed to the NCLT’s corporate indebtedness goal method, Resolution Professional (designated by NCLT) should assume control over the borrower who has finished administration and tasks and regulate the entire CIRP. Another issue is that the banks’ council has sole control over the RPs, without any standards. The need of great importance is to fortify the NCLT seats’ institutional ability and increment transparency in the choice of RPs.